High Yield Bonds

What is High Yield Bonds?

High yield bonds are bonds issued by a corporation that has been assigned below investment grade threshold by popular credit rating agencies such as below “BBB” from Standard & Poor and below “Baa” from Moody’s due to additional credit risks involved in interest and principal repayment. However, to compensate for higher default risks, these bonds offer attractive returns to investors.

Features of High Yield Bond

High Yield Bonds Types


You are free to use this image on your website, templates etc, Please provide us with an attribution linkHow to Provide Attribution?Article Link to be Hyperlinked
For eg:
Source: High Yield Bonds (wallstreetmojo.com)

Who are the Investors in High Yield Bonds?

Who are the Borrowers?

High yield financing has played a prominent role in certain sectors such as technology, media, energy, IT infrastructure. Companies in these sectors have a high debt burden relative to their earnings and cash flow. Some are startup companies or well-established companies restructuring, or high yield loans are used to finance the leveraged buyoutLeveraged BuyoutLBO (Leveraged Buyout) analysis helps in determining the maximum value that a financial buyer could pay for the target company and the amount of debt that needs to be raised along with financial considerations like the present and future free cash flows of the target company, equity investors required hurdle rates and interest rates, financing structure and banking agreements that lenders require.read more, refinancing existing loans, acquisitionAcquisitionAcquisition refers to the strategic move of one company buying another company by acquiring major stakes of the firm. Usually, companies acquire an existing business to share its customer base, operations and market presence. It is one of the popular ways of business expansion.read more, takeovers, etc.

High Yield Indexes

  • Standard & poor high yield corporate bond index
  • CSFB high yield II index
  • Bloomberg USD high yield corporate-based index
  • FINRA Bloomberg active high yield US corporate bond index
  • Barclays high yield index
  • Citigroup US high yield market index

Advantages of High Yield Bonds

Disadvantages of High Yield Bonds


A major attraction of high yield bonds is that it seems to generate both equity-like returns with bond type risks. Studies have shown High yield market has a negative correlationNegative CorrelationA negative correlation is an effective relationship between two variables in which the values of the dependent and independent variables move in opposite directions. For example, when an independent variable increases, the dependent variable decreases, and vice versa.read more with the government bond market and low positive to zero with equities and investment-grade bonds.

This has been a guide to What is High Yield Bonds & its Definition. Here we discuss the types of high yield bonds and its features along with advantages and disadvantages. You can learn more about from the following articles –

Reader Interactions

Leave a Reply

Your email address will not be published. Required fields are marked *